Baghdad asks for a formal oil deal with KRG

BAGHDAD: Iraq’s resumption last week of oil shipments through a Kurdish-controlled pipeline bumped up its export capacity by 5 percent almost overnight. Now OPEC’s second-biggest producer is seeking a deal with the self-ruling Kurds to ensure it can maintain the increased flows.

The central government in Baghdad has been locked in a dispute with the semiautonomous Kurdistan Regional Government in the north of Iraq since 2014, when the Kurds began selling their oil independently. In March, Iraq’s state-run North Oil Co. stopped using its only export route, the KRG’s pipeline to Turkey, for crude it pumped in Kirkuk province. The Oil Ministry ordered a restoration of these exports last week.

Deputy Oil Minister Fayyad Al-Nima said, “We’re still waiting for an agreement on the details regarding who should receive the oil revenues.”

The government is now exporting about 100,000 barrels a day from its Kirkuk fields, Nima said. Officials at the KRG’s Natural Resources Ministry didn’t immediately reply to requests for comment. A formal accord could keep Iraq’s northern exports flowing smoothly, sustaining the producer’s recent increase in supply to global markets. Iraq has struggled to raise oil exports this year, due partly to its feud with the KRG, and a failure by the two sides to reach a political agreement could jeopardize the renewed shipments. The three Kirkuk fields – Baba Gorgor, Jambour and Khabbaz – can produce a combined 150,000 barrels a day for export.

Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said, “It looks like a very shaky foundation for the restart.”

The central government and the KRG last reached a deal in December 2014, when they agreed that the Kurds would give Baghdad control of their exports in exchange for a full payment of their share of the federal budget. Within six months, independent Kurdish exports had resumed, and each side was accusing the other of not meeting its obligations.

Iraq’s new oil minister, Jabbar al-Luaibi, fed hopes for a new agreement, saying on Aug. 15, his first day in office, that he saw ways to resolve the dispute.

“Beyond that it really depends. Does the new minister succeed in coming up with a more sustainable proposition?” he questioned.

Both governments could benefit from an agreement, not least because both are short of cash after more than two years of battling Daesh (ISIS) militants and weathering low oil prices. Iraq is exporting 3.8 million barrels a day, including oil sold by the KRG, Prime Minister Haider al-Abadi said Tuesday at a news conference.

Hannah Poppy, an analyst at The Risk Advisory Group in London, said by phone, “It’s in the interest of both governments to try and get as much revenue as they can at the moment. It probably won’t be sustainable in the long term, simply because of the wider political disputes.”